The Promise of a Truly Entrepreneurial Society

For the last 200 years, entrepreneurial prowess enabled by financial capital has powered a long surge of economic growth. Over the major innovation cycles, the capitalist system has been resilient enough to absorb the effects of the crashes caused by pure speculation and turn them to its advantage. Production capital took the lead over financial capital and real value over paper value, as Carlota Perez has so well demonstrated in her book Technological Revolutions and Financial Capital.

Fast forward to today, and the picture is not so happy. Financial capital is in the driving seat. Eight years on, the world is tentatively emerging from a financial crisis that almost broke the global economy. Even though we are back to a semblance of stability, a range of unresolved issues – sky-high government debt, a still-fragile financial system, stagnant productivity, increasing levels of inequality, latent currency crises, slowing growth in emerging markets, high volatility in stock and commodity markets and geo-political instability and extremism – preclude any easy return to sustained economic growth.

This post is one in a series of perspectives by presenters and participants in the 8th Global Drucker Forum.

There are certainly many causes for concern. A striking feature of today’s fragile world situation is the inability to channel an abundance of cheap financial capital into productive use by companies, economies and states. Some prominent economists predict a new period of secular stagnation as the last great phase of innovation-fueled growth (as they see it) dries up. With attention fixed on the obsessive search for the next high-tech “unicorn,” vital investment is lacking in “Main Street” companies that could fuel precious growth and employment.

Most large companies seem to have lost the taste for entrepreneurship, their CEOs preferring to focus on using technology to maximize profit from existing businesses, as Clayton Christensen and others have shown, or not to invest at all. They are too often governed by the interests of shareholders who regard corporations as speculative investment opportunities rather than human communities for which true owners would feel ties of responsibility and commitment. And while capital markets celebrate short-term results over long-term corporate development, governments seem to have only one response to the urgent new challenges of our time: overregulation, resulting in crippling micromanagement and microregulation of domains that are evolving at breakneck speed, frequently aggravating the problems the regulations attempted to resolve. It is questionable, for example, whether many thousands of pages of regulations have enhanced the banks’ ability to carry out their core mission of funding the real economy of goods and services for real human beings.

The entrepreneurial society

Between discredited financial capitalism on one side and ever more burdensome state bureaucracies on the other, can we revive a lost but deeply rooted human capability – the capability to take passionate ownership of the problems we face, and to accept responsibility for creating our own solutions – that is, create the basis for a properly entrepreneurial society?

Peter Drucker called this a turning point in human history. What we need, he said, is not just an entrepreneurial economy but an “entrepreneurial society in which innovation and entrepreneurship are normal, steady, and continuous.” He saw innovation and entrepreneurship as life-sustaining activities that should pervade organizations, the economy, and society.

In terms of management, the advent of the entrepreneurial society means above all replacing the rigidities of industrial-age mind-sets, with their command-and-control, top-down orientation. There are indications that this is happening.

Agile methods and Scrum are creating space for individuals to self-organize and work in iterative processes. By bringing customer development closer to the marketplace and enabling rapid learning from failure, the lean start-up movement has great potential to increase the success rate of new ventures. New business models and value propositions are being developed by global teams using web-based tools and communication methods. Design thinking is entering the mainstream as large organizations learn to proceed by prototyping and iteration. Start-up factories, incubation hubs, living laboratories, and hotspots for innovation are springing up in cities around the world.

Large corporations are devoting serious attention to becoming “ambidextrous,” combining robust exploitation capabilities for existing businesses with new exploration-driven business engines inside and outside their organization. And above all, young people are legitimizing entrepreneurship with enthusiasm, passion, and drive.

Managing the transition

Yet start-ups and large corporations can only be part of the story of entrepreneurial reinvention. Making the shift from small to medium-sized business and generating more fast-growing “gazelles” remain major entrepreneurial challenges. Germany has shown the way, its “Mittelstand” encompassing numbers of world leaders or “hidden champions” in highly specialized fields, as Hermann Simon has described in his book of the same name. This entrepreneurial success story has not happened overnight. Many family-owned Mittlestand businesses are exemplars of stewardship in its truest sense, demonstrating long-term commitment to a business and to the employees who are its heart and brain. There are lessons here for giant corporations and the stock markets they trade on.

While digital technology creates extraordinary opportunities, it also disrupts existing economic, social, and physical infrastructures in ways and in time-spans that make the social consequences hard to absorb. Drucker observed long ago that each social problem is a business opportunity in disguise. Social entrepreneurship, social innovation, and public-private partnerships must play their part here. What we need is a “sharing economy” for acts of citizenship and mutual support and exchange that becomes a “caring economy” and that, together with state agencies, might knit together a flexible social web to provide security for the most needy.

Less encumbered by corporate baggage, the emerging world is more receptive to the idea that entreneurship can lay the foundations for decent lives and a good society – important, because the challenges are daunting. According to the 2015 Global Entrepreneurship Index, by 2050 low-income economies will need to integrate more than two billion young adults into the world economy. Job and sustainable growth are the real challenges of the world, beside which many of the issues that politicians, trade unions and advocacy groups tussle over in the West are luxury problems.

This enormous a transition is painful and frightening. But it can be shaped by society’s responsible groups — among which entrepreneurial managers, as Drucker always reminded us, must lead.